A bubble is when price is not justified

[paxmao]

A bubble is not about how high is the price of something (tulip bulbs, diamonds, dot-com stocks...), it is when the price is not justified. It is a bit for everyone to decide if the price of an asset is justified really, there is not a magic formula that will tell you if it is. In stocks or investments you can make a "discounted cash-flow" apply a rate of return and make some hypothesis about economy, growth and "moat" and at least you will get a number from it. On other assets, the price will be fixed by supply and demand (and that is the case for bitcoin) since they do not produce a regular cash flow.

When it comes to decide if there is a bubble, you have to think about how much is worth to you. How much would you pay to get, e.g. a 4% in dividend instead of spending the money today in a car or a TV? How much would you pay for a diamond or even a soccer ticket? (my personal for those two is quite low)? Or, How much would you pay for 1 in 21 million bitcoins?

Getting to the point, bubbles happen when you start buying something just because you think someone will pay more for it, instead of looking at how useful is it for you or for a community of people. Buying something is actually telling the market that they are wrong, and what you are buying is worth more than what the consensus means. This is being contrarian, anything else is speculating and creating bubbles.

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[Ucy]

What makes Bitcoin valuable to me is because it's unique, better and safer Network/System. It's also a unique system for true financial freedom. So, such system should be worth alot until we have a safe replacement that sufficiently improves on (but does not violate) the Bitcoin standards/features.
I haven't seen any yet as far as I can tell.
Besides, principled founders is also one reason I stick with bitcoin...they are not perfect though, but I havent seen great replacement yet in Crypto space full of wolves.

We need to moderate the volatility though... without compromising on the deflationary feature.

[Botnake]

Some people think bitcoin is a bubble, for me it's not.

They just don't understand that what makes bitcoin unique from another type of investment is because bitcoin is decentralized and with a fixed supply.
Hence, the price is very volatile, and we know the reason behind, it's the manipulation by the whales but it will not make bitcoin worthless even if it will dump in the long run as we know bitcoin will recover as well.

Bitcoin is not similar to a Ponzi scheme, it's an investment that does not promise anything.

[oHnK]

If we talk about bubble, then this is inseparable from Bitcoin and other alternative coins. All the economists who do not accept crypto think that this is only gambling because the risk of the bubble is very high and it does not have any underlying assets. I agree with you but it cannot be denied that crypto is an asset with a very high risk, people can create trends easily and destroy them in one word. This is what is happening now if we see EM behavior as whales openly. He announced that he had bought 1.5B USD on BTC so the market took it seriously and followed his lead until BTC almost touched the price of 1 B IDR, my country's exchange rate. After the bubble occurred, he sold it and slammed the price. This can be said to be an example of a real bubble recently.

[The Sceptical Chymist]

A bubble is not about how high is the price of something (tulip bulbs, diamonds, dot-com stocks...), it is when the price is not justified.

I think those two things are inseparable--a tulip bulb was definitely worth some price back in the 1600s, but the increase in price had gotten so out of control that people eventually realized how irrational the market for tulips had gotten.  And if you look at price charts of things that have been in a bubble, you'll see the same thing: exponential growth for a period of time followed by an enormous crash and a long period of stagnant prices.

I don't see bitcoin as being in a bubble right now.  There were "mini bubbles" in 2014 and 2017, but the recovery periods have been extremely short, and I wouldn't expect that in a true bubble.  Look at the price of gold and silver leading up to 2011, when they crashed.  It took 10 years just for their prices to get back to where they are now, which is still below their peak in 2011.  The NASDAQ composite took even more than that to recover from the crash of 2000--and the list goes on.

Bitcoin is not similar to a Ponzi scheme, it's an investment that does not promise anything.

I think most members here realize bitcoin isn't a Ponzi or a scam.  That was my initial impression of it back when I didn't know what it was, but nowadays I think even the average investors sees it as just another asset class (cryptocurrency), especially given how much mainstream media coverage it gets.

[Ultegra134]

A bubble is not about how high is the price of something (tulip bulbs, diamonds, dot-com stocks...), it is when the price is not justified.

I think those two things are inseparable--a tulip bulb was definitely worth some price back in the 1600s, but the increase in price had gotten so out of control that people eventually realized how irrational the market for tulips had gotten.  And if you look at price charts of things that have been in a bubble, you'll see the same thing: exponential growth for a period of time followed by an enormous crash and a long period of stagnant prices.

I don't see bitcoin as being in a bubble right now.  There were "mini bubbles" in 2014 and 2017, but the recovery periods have been extremely short, and I wouldn't expect that in a true bubble.  Look at the price of gold and silver leading up to 2011, when they crashed.  It took 10 years just for their prices to get back to where they are now, which is still below their peak in 2011.  The NASDAQ composite took even more than that to recover from the crash of 2000--and the list goes on.

Bitcoin is not similar to a Ponzi scheme, it's an investment that does not promise anything.

I think most members here realize bitcoin isn't a Ponzi or a scam.  That was my initial impression of it back when I didn't know what it was, but nowadays I think even the average investors sees it as just another asset class (cryptocurrency), especially given how much mainstream media coverage it gets.

Those who believe that Bitcoin is a Ponzi scheme don't cease to amaze me. Bitcoin has proven its worth, throughout the years, earnings are solely based on your decisions, it's a decentralized asset that has gained value, similarly with gold. No one has actually promised a guaranteed profit with cryptocurrency.

I don't believe that it's a bubble either, however, I do believe that its price skyrocketed sharply, within a short time period.

[fiulpro]

Well I do believe that people think there bubble is basically when the price keeps going higher and higher and suddenly the price comes down drastically.
Which has happened to the market a lot of times but I do believe that this is not only essential but its also character of a Crypto, which essentially distinguishes it from fiat and other currencies. I do think that this is a term which was coined by people who have their balances only in banks and other Investments.
- For me if the price is low 🔅 you just need to buy and wait for the perfect opportunity to sell.
This is how the bubble works, it's essential for the whole market and it is through this that we see the redistribution of wealth.

[wxa7115]

Some people think bitcoin is a bubble, for me it's not.

They just don't understand that what makes bitcoin unique from another type of investment is because bitcoin is decentralized and with a fixed supply.
Hence, the price is very volatile, and we know the reason behind, it's the manipulation by the whales but it will not make bitcoin worthless even if it will dump in the long run as we know bitcoin will recover as well.

Bitcoin is not similar to a Ponzi scheme, it's an investment that does not promise anything.

The lack of financial education really hurts people in scenarios like this one, bitcoin is not a bubble but bitcoin like any other asset can be subject to form bubbles from time to time, for most people there is no difference between those two statements but for us that is all the difference in the world.


Bitcoin has been the best performing asset since it was created, you cannot maintain that kind of performance if it was simply a bubble, bitcoin is very volatile but that has to do with its small size compared to other financial assets and due to its inelastic supply, this creates bubbles from time to time but nothing that anyone that is willing to be invested in bitcoin for the long term should be worried about.

[jaysabi]

What makes Bitcoin valuable to me is because it's unique, better and safer Network/System.

I don't think this is true. What makes bitcoin valuable to you is that other people think it's valuable. You wouldn't be paying $40,000 per coin if everyone else thought it was paying $10,000 just because it's "unique, better and safer Network/System." Your perception of what bitcoin is worth and whether it's overvalued or undervalued is inextricably linked to what other people think of it. If that wasn't the case, you would have never stopped buying when it was sub $1000. The problem was you didn't know what it was worth then, because nobody else did either. And nothing has changed there. Nobody still knows what it's worth because it's all just speculation, and the speculation is about what other people are going to think about it in the future that's going to determine its value.

An inability to value it and just investing based on speculation are why it's a bad investment choice for me.

[Ultegra134]

What makes Bitcoin valuable to me is because it's unique, better and safer Network/System.

I don't think this is true. What makes bitcoin valuable to you is that other people think it's valuable. You wouldn't be paying $40,000 per coin if everyone else thought it was paying $10,000 just because it's "unique, better and safer Network/System." Your perception of what bitcoin is worth and whether it's overvalued or undervalued is inextricably linked to what other people think of it. If that wasn't the case, you would have never stopped buying when it was sub $1000. The problem was you didn't know what it was worth then, because nobody else did either. And nothing has changed there. Nobody still knows what it's worth because it's all just speculation, and the speculation is about what other people are going to think about it in the future that's going to determine its value.

An inability to value it and just investing based on speculation are why it's a bad investment choice for me.

Isn't that determined by demand and supply? I mean, back in the early days of 2013-14, Bitcoin wasn't that popular, thus, its demand was pretty restricted to a limited amount of skilled individuals. (Metaphorically speaking when mentioning individuals, I'm implying that the demand was pretty limited compared to nowadays). More and more people are involved now, rendering Bitcoin and cryptocurrencies popular, while at the same time being suggested by multiple investors.

It's now seen as an investment asset, similar to gold, it's valuable because it's being bought and used, not only by individuals but also from large corporations, such as Tesla, or PayPal.

[sheenshane]

I tend to agree, bubble is somehow different and you can only consider an asset having a bubble if some undisclosed circumstances affected its value and mostly the bubbly is caused by the founders and the initiator's actions.

This won’t apply to Bitcoin. Not only because Bitcoin is a decentralized one, everything in Bitcoin is transparent enough not to be suspected of bubble.

The correction is justified, China just banned all the financial institutions to serve cryptocurrency-related services, not just that, miners are forced to move their mining rigs somewhere offshore, then we all know that these could affect the price generally.

People who fears of Bitcoin having a bubble are the people who should know more about Bitcoin.  We all agreed and knew the pros and cons of Bitcoin as we enter and stay.  These circumstances don’t affect that, it’s not new to us anymore.

[SquallLeonhart]

Getting to the point, bubbles happen when you start buying something just because you think someone will pay more for it, instead of looking at how useful is it for you or for a community of people. Buying something is actually telling the market that they are wrong, and what you are buying is worth more than what the consensus means. This is being contrarian, anything else is speculating and creating bubbles.

The ease of saying "bitcoin is in a bubble" comes from the fact that it doesn't really have a value or a cost and that is the reason. Sure miners have a cost but they create that cost, if every miner in the world stops right now and only you mine it with your laptop that will still be valid (albeit very inefficient) and you will get it all and make a killer profit. Sure the more the merrier for the efficiency of the project but that cost is still insanely lower than what it is right now and never really reflected on the price before, we had times when cost was higher than the price and we have times when price is higher than the cost.

The real cost of diamonds is known to be very little, or tulips are like a dollar at most, whereas when it comes down to spending 1000X more on them, people did it and still doing it and that is the real reason for calling it a bubble.

[Mauser]

A bubble is not about how high is the price of something (tulip bulbs, diamonds, dot-com stocks...), it is when the price is not justified. It is a bit for everyone to decide if the price of an asset is justified really, there is not a magic formula that will tell you if it is. In stocks or investments you can make a "discounted cash-flow" apply a rate of return and make some hypothesis about economy, growth and "moat" and at least you will get a number from it. On other assets, the price will be fixed by supply and demand (and that is the case for bitcoin) since they do not produce a regular cash flow.

When it comes to decide if there is a bubble, you have to think about how much is worth to you. How much would you pay to get, e.g. a 4% in dividend instead of spending the money today in a car or a TV? How much would you pay for a diamond or even a soccer ticket? (my personal for those two is quite low)? Or, How much would you pay for 1 in 21 million bitcoins?

Getting to the point, bubbles happen when you start buying something just because you think someone will pay more for it, instead of looking at how useful is it for you or for a community of people. Buying something is actually telling the market that they are wrong, and what you are buying is worth more than what the consensus means. This is being contrarian, anything else is speculating and creating bubbles.

I agree with you, bubbles can happen even if the price is not so high. The thing with bubbles is that most people thing they can get out before the bubble burst. It is like with a pyramid scheme. Most people are aware that the prices are higher than the fundamentals make sense but still go for a trade. It is all about finding a buyer that is willing to pay more than we paid, and then the bubble burst all of a sudden. One problem for comparing prices to our own preferences is that it is not universal, people will be giving different prices for a diamond or a soccer ticket. Some people want to get the cheapest ticket and are willing to sit in the back rows, while others want to sit every game in the first row and are willing to pay 1000+ per season.

[Twentyonepaylots]

People relating the bitcoin phenomenon to the tulip mania is wrong specifically because of this. They always see bitcoin's high price as a bubble not knowing why people are buying into it anyway. They tend to forget the use-case that bitcoin could potentially provide the current world and the future that it can pave for our grandkids. That is something that doesn't strike a thought on their brains which is why they would always continue to blabber about how bitcoin is useless and the bubble is going to pop anytime soon.

[Gyfts]

Spot on. I remember going through the dot com bubble where a bunch of tech related investors lost everything, and that market didn't really recover. Bitcoin had unhealthy growth (I do hate to admit this tbh). It was nice while it lasted, but a bunch of naive investors treating it like a ponzi meant it had to crash at some point. Contrary to other bubbles, BTC will be back, I'm not worried.

[yananda]

we can learn it from SHIB or DOGE which according to my assumption the increase is unreasonable, skyrocketed suddenly and made beginners also interested in speculating. maybe after seeing the current situation will be an experience for the future

[jaysabi]

What makes Bitcoin valuable to me is because it's unique, better and safer Network/System.

I don't think this is true. What makes bitcoin valuable to you is that other people think it's valuable. You wouldn't be paying $40,000 per coin if everyone else thought it was paying $10,000 just because it's "unique, better and safer Network/System." Your perception of what bitcoin is worth and whether it's overvalued or undervalued is inextricably linked to what other people think of it. If that wasn't the case, you would have never stopped buying when it was sub $1000. The problem was you didn't know what it was worth then, because nobody else did either. And nothing has changed there. Nobody still knows what it's worth because it's all just speculation, and the speculation is about what other people are going to think about it in the future that's going to determine its value.

An inability to value it and just investing based on speculation are why it's a bad investment choice for me.

Isn't that determined by demand and supply? I mean, back in the early days of 2013-14, Bitcoin wasn't that popular, thus, its demand was pretty restricted to a limited amount of skilled individuals. (Metaphorically speaking when mentioning individuals, I'm implying that the demand was pretty limited compared to nowadays). More and more people are involved now, rendering Bitcoin and cryptocurrencies popular, while at the same time being suggested by multiple investors.

It's now seen as an investment asset, similar to gold, it's valuable because it's being bought and used, not only by individuals but also from large corporations, such as Tesla, or PayPal.

Demand comes from people wanting to buy it as an investment; actual use-case remains scant compared to people just holding it. The demand as an investment comes from speculation that other people will consider it to be worth more in the future than you bought it for, which leads directly back in to my prior post that it's driven exclusively by speculation.

[(o)(o)ilikeboobs(o)(o)]

Bitcoin's bull case is logical as it has gone through its 3rd halving and has many multi-million dollar buy-in funds in the form of Microstrategy.
Bitcoin has been accumulating for a long time and exploded in value when the pandemic hit. Money flows into Bitcoin because they are withdrawn from other markets. Not only Bitcoin but a series of stocks of companies around the world have increased in price. A high price increase will have to reduce the price to regain balance so I think Bitcoin is not a bubble. Many people have concluded Bitcoin is a bubble in 2017 and now Bitcoin is above the $20k level of ATH Bitcoin in 2017.

[hatshepsut93]

Getting to the point, bubbles happen when you start buying something just because you think someone will pay more for it, instead of looking at how useful is it for you or for a community of people.

You can buy something because you believe it will be worth more in the future because it would be more useful. Like shares of a company that is small now but will become large in the future. Or with Bitcoin, it will be more adopted as a currency or store of value.

The problem with Bitcoin is that there's no good way to calculate how much it should be worth like you can with stocks, it's all just pure guess and the fact how much money can people actually pay for it. Some people say that Bitcoin will be worth $150,000 or $500,000 - but if they truly believe it, why won't they sell all their assets for it?

[Natsuu]

Getting to the point, bubbles happen when you start buying something just because you think someone will pay more for it, instead of looking at how useful is it for you or for a community of people.

~~~

The problem with Bitcoin is that there's no good way to calculate how much it should be worth like you can with stocks, it's all just pure guess and the fact how much money can people actually pay for it. Some people say that Bitcoin will be worth $150,000 or $500,000 - but if they truly believe it, why won't they sell all their assets for it?

The question intrigues me. Each individual has primary needs and essentials. These are somethings you cannot trade for anything for you to be able to survive in this era.

So the question is why won't they sell all their assets if they believed the price is higher than what currently it is. The answer is very simple, people are not dumb enough to invest in one thing as they see it to have high value. Plus the different factors affecting BTC and the infamous "VOLALITY"